Question

The Cambro Foundation, a nonprofit organization, is planning to invest $193,700 in a project that will last for three years. The project will produce net cash inflows as follows: $50,000 $75,000 Year 1 Year 2 Year 3 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. Required: Assuming that the project will yield exactly a 6% rate of return, what is the expected net cash inflow for Year 3? Net cash inflow

Answer 1

Net Cash inflow $ 95,020

Step-1:Calculation of present value of cash inflow of 2 years
Year	Cash Inflow	Discount factor	Present value
a	b	c=1.06^-a	d=b*c
1	$       50,000	0.943396	$           47,170
2	$       75,000	0.889996	$           66,750
Total			$       1,13,920
Step-2:Calculation of balance present value of cash inflow
Initial Investment			$       1,93,700
Less Present value of cash inflow of 2 years			$       1,13,920
Present value of cash inflow of year 3			$           79,780
Step-3:Calculation of Cash inflow of 3 years
Expected net cash inflow of year 3		=	$           79,780	*	(1.06^3)
		=	$           79,780	*	1.191016
		=	$           95,020